Articles tagged by Hedging
Asian corporates and CFOs cited FX risk as the financial
risk that they are most concerned about, according to a new survey from Thomson
Reuters and Asset Benchmark Research.
In the report accompanying the research results, it notes
that as ...
Moises Michan, managing partner at Tanridge Capital, talks about the benefits of FX within a portfolio and explains how firms can benefit from more active hedging strategies
Profit & Loss: How long has Tanridge Capital been trading now?
Moises Michan: We started the firm about two years ago. We’re an FX-focused asset manager with three main products: alpha strategies, passive overlay and active overlay.
P&L: Prior to this you were on the bank side, correct?
MM: Yes, it was working on the bank side that I noticed a real gap in the FX market.
A more volatile trading environment is exposing a segment of businesses that are currently being under-served by FX service providers, claims Moises Michan, a managing partner at Tanridge Capital.
“I think that when you start looking into these higher volatility environments is when you start having treasurers and heads of family offices realising that they’re not FX experts, there’s a lot of mechanics a lot of input going into the FX market, and they do have exposures,” he says.
Michan says that Tanridge capital is focusing its efforts on providing FX asset management services for small to medium sized institutions that don’t meet the client requirements of the big banks.
Polish FX executives say that geopolitics is the biggest issue facing its country and currency this year, according to the results of a Bloomberg FX survey issued today.
In the survey 56% of Warsaw FX professionals said that the single biggest challenge facing corporations in the country will be navigating geopolitical challenges, while one-quarter say it will be hedging against market volatility.
According 56% of those who responded to the survey, the most significant issue affecting the zloty in 2017 will be political developments between Poland and Europe. Other survey respondents thought that the zloty could be most affected by geopolitics or moves by central banks in the US and Europe.
As UK businesses prepare for Brexit, small firms are managing their FX risk more and more as they look to increase trade internationally, and exporters forecast increased growth in FX turnover, according to a new report from East and Partners released this week.
Following interviews with 2,211 UK corporates, East and Partners has revealed that 25% of micro businesses and over 40% of SMEs used FX forwards in the second half of 2017, an increase of 16% and 15%, respectively, over the last six months. The report also shows that larger businesses are also using hedging options on a more regular basis, with nearly half indicating their use.
“Awareness and understanding around the benefits of FX risk management solutions has clearly hit home with UK small business, leading to record highs in its usage,” says Simon Kleine, business lead at East and Partners Europe.
Institutional investors have long understood the value of diversifying their portfolios, and this usually means investing internationally.
But when they buy foreign equities, they’re actually buying two portfolios, the first being the long equities denominated in their base currency, and the second is that they’re shorting their base currency against the foreign currency they need to purchase the equity.
This presents institutional investors with a choice: they can do nothing and accept the risk of holding this foreign currency, hedge that currency exposure passively or manage it actively.
Profit & Loss Forex Network NYC is set for May 24th at the Crowne Plaza Times Square, with an opening with a Fireside Chat entitled “Keeping Pace with Cryptos” with Mike Gill, Chief of Staff to CFTC Chairman Christopher Giancarlo, and CFTC COO.
The annual event will take a look at the emergence of cryptocurrencies and tokens as a “new economy”, one that offers enticing opportunities for traders given the volatility these products exhibit and their lack of correlation to traditional asset classes. The growth in these digital assets in 2017 was extreme, can the beta tailwinds continue in 2018? And with the emergence of so many new exchanges, cryptocurrencies and tokens, where should investors look for the best alpha opportunities?
Adrian Lee, president and CIO at Adrian Lee & Partners, explains why combining currency hedging with alpha generating strategies can benefit investors.
When questioned about whether clients are looking for hedging or alpha from currency managers, Lee responds that many clients actually need both simultaneously.
He continues: “The challenge of risk management is that currencies are a biggish risk – there’s no long-run return really, so on paper it makes sense to reduce it. But when you start to do these hedges after you’ve got the international assets, you’ve got to get the currency exposure back… with that [you have] really strong cash flows because if you hedge half your 20% international, it’s 10% of your whole portfolio. If that goes against you [the impact on] performance in a quarter could be massive.”
Momtchil Pojarliev, deputy head of currencies at BNP Paribas Asset Management, talks about some of the misconceptions that exist amongst institutional investors regarding currency hedging.
For example, he explains that in the past, some firms have been unclear on the exact difference between absolute return strategies and active hedging.
In the former, the aim is to produce risk-adjusted returns that are as high as possible for a given volatility. The currency manager is allocated a notional amount of funds and can invest in any given currency to try and produce the maximum amount of returns possible.
In total, 70% of corporate chief financial officers (CFOs) said that their company suffered reduced earnings in the last two years due to avoidable, unhedged FX risk, according to a global survey of 200 CFOs and nearly 300 treasurers.
In the survey, conducted by HSBC and FT Remark, 58% of CFOs in larger businesses said that FX risk management is one of the two risks that currently occupy the largest proportion of their time, while 51% said that FX is the risk that their organisation is least well-placed to deal with.
Meanwhile, 72% of treasurers said that FX risk management is one of the most important aspects of their job and 53% said that they expect changes in FX regimes and regulation to materially impact their risk management strategy in the next three years.
Even when implementing passive currency hedging strategies, it’s still important to think in terms of alpha, explained Jay Moore, a senior vice president at Brown Brothers Harriman (BBH), during a panel discussion at the Profit & Loss Forex Network New York conference.
Although this might initially seem to be a contradictory statement, Moore explained that providers of passive hedging services can differentiate themselves both through risk management and what he termed “operational alpha”.
While portfolio risk obviously isn’t a concern when implementing passive currency strategies, Moore explained that there is a strong focus on managing other types of risk, such as regulatory risk, operational risk and managing the fiduciary risk that managers have on behalf of the funds that they outsource to firms that are providing the passive hedging.
Despite a decline of investment into actively managed FX funds in recent years, speakers at the Profit & Loss Forex Network New York conference expressed optimism for these funds.
Chris Solarz, a managing director at Cliffwater, a firm that provides investment advisory services, explained that hedge fund strategies in general have struggled to outperform indices since the financial crisis, both on an absolute and relative basis.
“Someone mentioned on an earlier panel that it’s not fair to compare hedge fund strategies, hedge fund indices, to the S&P - but in the industry 10 years ago, that’s not at all how we were selling it.
Much has been made of the struggles of speculators to make money in FX in recent years. Colin Lambert takes a look at data that suggests speculators are on the decline, and hedgers on the rise – and he sees some good news for the banks in this, if they can stay one particular course.
Spot FX is “over-broked” to use the market vernacular – there are so many market makers, many of whom are recycling liquidity, that differentiating oneself in this market is extremely difficult unless you are either at the very quick end of the spectrum or are handling plenty of large tickets that require care around the execution.
For many corporate treasurers, deciding what products to use in order to hedge their FX exposures is the easy part of the job. The hard part is working out exactly what their FX exposures are. Galen Stops reports.
When it comes to effectively hedging FX exposures, it seems that the biggest challenge facing corporate treasurers is simply getting an accurate view of what these exposures are.
“Getting a centralised view of our FX exposures is very difficult. It’s always an issue, it’s something that we work on constantly and we’ll probably never get to the point where we have a perfect view on this,” says a source at one European corporate with revenues over $22 billion.
After a good January, March is shaping up to be, much like February, a pretty ropey month for many in the foreign exchange industry, and this is manifesting itself in the form an increasingly louder debate about the lack of volatility. I saw this week one publication suggesting that FX markets need “a proper crisis” to get things moving, but I am not even convinced that will do it. The sad reality for those seeking livelier markets is that this is probably your new 'normal'.